Using Euro coins as weights (2004)

At one point, I worked out that US dimes, quarters, and half dollars all weigh $20/lb (iirc), which made the task of counting my accumulated change a lot easier.

That's because that was the price of silver. The mint was for many centuries a way to get your precious metals divided into units of standardized weights that were stamped to certify their authenticity, thus facilitating commerce, though frequently rulers succumbed to the temptation of "debasing" them by diluting the precious metals with so-called "base" (in the sense of "low", "contemptible") metals such as tin, lead, and zinc.

So quarters weren't worth 25¢ because the government said so; they were worth 25¢ because they were made out of 25¢ worth of silver.

That's the same reason "peso" means "weight" and the "shekel" and "pound" take their name from units of weight.

This ended in 01965 in the USA, followed by the end of the gold standard, since which the dollar has lost 96% of its value relative to the precious metals that used to define it. The consensus among economists is that this is a good thing because it prevents deflation. I'm not sure.

> since which the dollar has lost 96% of its value relative to the precious metals that used to define it.

Why is this important?

It may not be, but, as I said, economists generally believe it to be important. It's a very noticeable departure from the previous 180 or so years, during which time it had lost about 50% of its value by that standard. I'm not saying, for example, that the US currency will inevitably collapse due to a Zimbabwe-style hyperinflationary spiral, although that is a thing that many fiat currencies have done going back to the Song, nor that commodity money such as silver coinage is immune to inflation—coinage debasement is even older than paper-money hyperinflation.

Economists generally believe that the US's gradual shift from commodity money to fiat money over the period 01932–01971 was beneficial.

But I suspect that the shift to a fiat-money basis may be having some effects on the economy that are not well understood.

I was asking why it is important for the currency value to be reflected in the value of a precious metal. My understanding is that precious metals were used historically because of rarity, the ease of working with them to make currency, and the difficulty of counterfeiting. All of those things can be transferred to modern banknotes, so I wonder what the value making the dollar's market price equal to the market price of a specific amount of metal.

Inflation is something that is generally considered good by economists because it allows for growth. If the money supply is fixed at how much of a certain metal you have mined, then the economy cannot expand without the money deflating. Deflation completely stops growth because no one will lend, and people will be reluctant to spend something that gets more valuable over time.

Right, that's precisely the currently fashionable belief system as I understand it. But I'm not entirely comfortable praising the US economic system in the fiat-money era 01971–02024 by comparison to the previous 53 years, 01918–01971, which were the last 53 years of the commodity-money era there, except for a short break in the 01920s. I think everyone agrees that the US economy developed in a qualitatively better way from 01918 to 01971 than from 01971 to today, and that there was a sort of discontinuity around 01971.

It's possible that the mainstream economists are right, and that things would be far worse without the shift to fiat money, and it's just a coincidence that it happened at the same time everything started falling apart. We don't have anything like a controlled experiment. A lot of things happened to the US around 01971: the Vietnam War, the Civil Rights Movement, the end of the Apollo program, the War on Drugs, the New Age movement, CREEP, rapprochement with the PRC, the energy crisis, the Clean Air Act, second-wave feminism, Love Canal, etc. Most of these seem like things you'd naïvely expect to reduce domestic economic inequality, though, however detrimental they might have been to the residents of Taipei and especially My Lai. So why did it skyrocket instead?

PG has an innocent explanation: as I understand it, he thinks companies suddenly had to compete for superstars in the job market, abandoning seniority-based pay and thus creating the yuppie and growing wealth inequality. But a plausible alternative explanation is that fiat money rewards elites in nonobvious ways, enabling them to concentrate ownership of the economic base in a smaller and smaller subset of the population. Certainly that was the merit Marco Polo claimed for paper money when he became the first European to describe it in writing.

It's not a widely accepted theory today, more associated with crackpots actually, but it certainly isn't new.

> I think everyone agrees that the US economy developed in a qualitatively better way from 01918 to 01971 than from 01971 to today

I don't think everyone agrees on that. There was a huge crash which posed an existential threat to capitalism in the middle of the first one.

> Most of these seem like things you'd naïvely expect to reduce domestic economic inequality, though, however detrimental they might have been to the residents of Taipei and especially My Lai. So why did it skyrocket instead?

What does any of this have to do with currency policy?

> But a plausible alternative explanation is that fiat money rewards elites in nonobvious ways, enabling them to concentrate ownership of the economic base in a smaller and smaller subset of the population.

Even more plausible than 'post-WWII cold war politics and domestic upheaval due to civil rights, the rise of the middle class, birth control and women getting control over their own lives caused society to shift in unexpected ways and gained reactions from all segments of society which shape our modern world'?

> It's not a widely accepted theory today, more associated with crackpots actually, but it certainly isn't new.

Yet you are doing that thing where it is obvious that you believe this but won't say it openly.